Quarterly Market Commentary

By Mark Harries, Chief Investment Officer, Square Mile

Recent UK economic signals have remained broadly positive and the June GDP numbers indicated a stronger recovery than forecasted and the Bank of England now expects the economy to regain its pre-COVID size by the end of this year.

While growth in the UK’s service sector has slowed to its weakest level since March overall, it has been a much more positive story for manufacturing. The Bank also found costs were rising at their fastest pace in 25 years, raising concerns of inflation. Inflationary pressures within the labour market were also evident, with UK job vacancies rising above 1 million for the first time ever. The list of anecdotal reports of labour and product shortages continued to grow, including McDonald’s milkshakes, chicken-based products at Greggs, bikes at Halfords and decaffeinated coffee at Costa.

The well-documented semi-conductor shortages alongside labour shortages from the ‘pingdemic’ and Brexit migration away from the UK resulted in an almost 40% fall year-on-year in UK car production, which is the worst performance seen since 1956. In fact, efforts to plug labour shortages led to the highest number of job vacancies on record. It is ironic that for most of the pandemic period policymakers were worried about too much unemployment. Now the fear is that there are not enough workers to fill all of the jobs. However, there are still some lingering concerns that when the government furlough scheme finishes at the end of this month, unemployment will jump. We will have to wait and see.

So, as we move into the Autumn, we remain positive on the outlook but expect returns to be a little more volatile than we have seen so far this year.

Our thoughts expressed in this update relate only to the portfolios we manage, or advise on, on behalf of our clients and as such may not be relevant to portfolios managed by other parties.